A8 New Media Group's (HKG:800) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, A8 New Media Group (HKG:800) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on A8 New Media Group is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.003 = CN¥4.9m ÷ (CN¥1.8b - CN¥124m) (Based on the trailing twelve months to December 2020).

Thus, A8 New Media Group has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 13%.

View our latest analysis for A8 New Media Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for A8 New Media Group's ROCE against it's prior returns. If you're interested in investigating A8 New Media Group's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From A8 New Media Group's ROCE Trend?

A8 New Media Group has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 0.3% on its capital. And unsurprisingly, like most companies trying to break into the black, A8 New Media Group is utilizing 47% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From A8 New Media Group's ROCE

Long story short, we're delighted to see that A8 New Media Group's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 60% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

A8 New Media Group does have some risks, we noticed 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

While A8 New Media Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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